Becoming a consumer: who’s got the energy?

by Graham MartinOct 26, 2012

Photo: "Obesity Crisis?" from Delishus Demon Flickr Photostream

Last week’s announcement that the state will force energy companies to provide customers with their cheapest gas and electricity tariffs is interesting for a number of reasons. It seems the policy will require energy companies to notify customers of cheaper deals they provide, and even automatically move them onto these unless they specifically opt out. This is the latest step in government efforts to revitalise a dysfunctional energy market in which low competition, poor-quality infrastructure and increasing dependency on external production has resulted in continuously rising prices from an apparent cartel of six large suppliers.

This is a surprising, tacit acknowledgement from a right-of-centre government that on its own, the market doesn’t always work in quite the way intended. Advocates of market systems argue that the market provides a dynamic and efficient way of ensuring the optimal production and distribution of goods and services. But neoclassical economists also acknowledge that certain preconditions are required for markets to serve this function effectively: things like a plurality of sellers and buyers, access to accurate information about pricing and quality of services, and so on. Clearly the energy market falls short on at least some of these fronts, and these government moves are an attempt to meet these preconditions. The shortfalls of the energy market also raise some issues for the choosing health care consumer. Perversely, the introduction of more health care markets might present the opportunity for patients to resist the marketization of health care.

Energy is an interesting case; the gas and electricity that you purchase from one supplier is pretty much the same as what you’d get from another. Choosing the cheapest energy company is a lot simpler than choosing whether to buy groceries from Waitrose or Tesco when other considerations like quality come into play. The energy companies have been accused of making consumer choice more difficult by offering an array of complex tariffs, and you may want to choose on the basis of factors other than cost—customer service and ‘greenness’, for example. But ultimately, finding the best offer for your gas and electricity isn’t that difficult if you take a bit of time to shop around. The primary consideration is the cost of the product; there’s no quality difference between the gas provided by two competitors (indeed, the gas itself will be exactly the same!).

A more significant problem with realising the theoretical virtues of markets in practice is that people don’t always want to take time to shop around. A fundamental, but frequently taken-for-granted, assumption of market economics is that people behave in economically rational ways: they make choices in order to maximise the value they obtain from the things they buy. In other words, for markets to work properly, people have to act like customers so that their preferences and choices feed through into market signals and act for the greater good: Adam Smith’s ‘invisible hand’ in action. If people do not (or cannot) act like customers, the market stops functioning. Combine this with information inaccuracies or low levels of competition, and even the most ardent market economist would concede that intervention is required, and top-down regulatory measures like last week’s become necessary.

The increasing prevalence of markets in a whole host of areas (e.g. health care, education, social care) suggests that we are quite good at behaving ‘properly’ and becoming the rational consumers that the market requires, but in fact there is strong evidence that in many areas, people are reluctant to become customers. John Clarke’s study of consumerism in public services, found that people really don’t want choice a lot of the time—or at least, not ‘choice’ in the sense in which it is used by advocates of competition in public services. People welcome the ‘little choices’—being able to choose an appointment time, for example—but they really aren’t that interested in making a choice of schools, hospitals, GP practices: they just want good-quality provision that is local and accessible. Perhaps this explains our reluctance to embrace choice in the field of energy, which was not so long ago a public service offered by a monopoly state provider.

How does this reluctance to become the proper, rational, choice-making subjects auger for the variety of decisions we are increasingly expected to make in terms of our health care? Mol (2008) talks about this very point in her book ‘The Logic of Care’. We’ve had the ability to choose where we receive elective hospital care for some time now; current government plans to increase competition in both primary and secondary care will allow us to exercise that choice in more and more fields of health care. Yet if the energy market is plagued by information asymmetries, problems of measuring quality and a market dominated by a small group of providers, then health care is even more so. A little bit of information can be a dangerous thing: is that Virgin MegaSurgeon’s mortality data better than that Dowdy NHS Surgeon’s because she is a better clinician, or is it because Dowdy NHS Surgeon takes on more complex cases at higher risk of complication and death? Making choices in a market like this is no easy process; and the evidence suggests that people really don’t want to, at least without the assistance of their GP.

Perhaps what this all suggests, though, is that we are right to be reluctant to play the role of customer in the health care market. If we fail to make those rational choices, then the market fails to function properly—but isn’t this more appealing than a ‘functioning’ market based on flawed choices? The experience of the energy market suggests that by ‘withdrawing our labour’ as rational choice makers, we can undermine the whole marketization enterprise. As we are asked to move from being health care patients to health care customers, choosing not to choose may paradoxically prove to be the best way of imposing our collective will on the health care system.

About the Author:Graham Martin (@graham_p_martin) is based in the SAPPHIRE Group at the University of Leicester’s medical school. His research focuses on healthcare policy, organisation and reform, and how these impact on professionals, managers and patients.

The breaking stories about price fixing in gas and electricity markets must surely give a lie to market principles of competition across utility providers (in which we are captive consumers) being in the best interests of the ‘choosing consumer’. It would appear our choice is not over who offers us the best deal, but rather who rips us off the least (and this becomes the best deal available…!). These price fixing scandals, hot on the heels of the Libor inter-bank lending scandal, raise some very worrying issues in regard to the marketisation of healthcare. What is to stop a group of private healthcare companies fixing treatment costs, such that healthcare purchasers (for it is purchasers who are the most important consumers in the new NHS landscape) have little in the way of ‘competitive leverage’ between providers? Nobody is really surprised that gas companies, electricity companies and banks were rigging the market for private profit, why should health be any different?

Well treatment costs are going to be fixed anyway, aren’t they, at least at first? As far as I know, in most fields there will remain a national tariff, and so competition (in theory) will be on the basis of quality rather than price. A more immediate problem if that system were removed might be lowest-common-denominator competition on the basis of cost–though I agree that one plausible longer-term outcome of that is a reduction in the number of providers (NHS and private sector organisations going out of business), and oligopoly of big providers, and then real potential for a cartel.

Yes of course you are right, it is tariff based, but for how long? For example, part of reason for the much vaunted (and largely inconsequential) ‘listening exercise’ were fears over the creation of GP cartels via the CCGs (though it could be argued this was more about professional standing than potential for financial gain). If we think about the opening up of the NHS to qualified providers and the like in terms of the old maxim ‘where there’s muck, there’s brass’- translated to the current context it becomes ‘where there’s health, there’s wealth’. If we continue down this road it is only a matter of time before profiteering, cartels and price fixing will establish themselves, quite simply because they are fundamental features of any market.